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KRChoksey Research Report
We expect Q2 FY24E to be a mixed bag for the pharma sector as some companies benefit from improving U.S. generics outlook and new products and demand pick-up in chronic segments, while other companies are impacted by regulatory pressures and weakness in the acute category.
The Nifty Pharma Index has grown 18.4% over the last year versus 16.3% growth in Nifty 50.
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This outperformance of pharma Index was due to the strong performance in U.S. generics, increase in market share from newly launched products and lower raw material costs.
Our top picks in the sector are Zydus Lifesciences Ltd. (robust pipeline of complex generics and gRevlimid to boost U.S. sales) and Sun Pharmaceutical Industries Ltd. (specialty segment to drive U.S., global business and field force addition to boost domestic sales).
Quarterly result expectation for companies under coverage
Sun Pharma -
Sun Pharma's business likely to witness strong growth on the back of momentum in Ilumya and Cequa, but the U.S. generics business is likely to be impacted by regulatory issues at the Mohali facility.
The Indian formulations business should grow in line with the industry. Ebitda margin is expected to contract 320 basis points YoY (-189 bps QoQ) to 26.0% due to a rise in employee expenses from higher field force and an increase in other expenses.
The net profit margins are likely to decrease by 349 bps YoY (-26 bps QoQ).
Key Parameters:
Momentum in the specialty product portfolio;
Commentary on cost management.
Cipla
Cipla Ltd.'s revenue is expected to increase by 10.9% YoY (2.1% QoQ) due to strong growth in North America sales on higher market share in Lanreotide and gRevlimid, and lower price erosion. The growth in domestic sales is led by price hikes and MR additions.
Chronic share is expected to increase as the acute sales will drop for the quarter. The Ebitda margin is expected to expand by 157 bps YoY (+31 bps QoQ) due to higher U.S. sales and favorable product mix. Net profit margins are likely to rise by 195 bps YoY (-28 bps QoQ).
Key Parameters:
The strength of sales momentum in US generics and
chronic segment in the domestic business.
Zydus Lifesciences
Zydus Lifesciences Ltd.'s revenue is expected to increase 13.3% YoY (-8.9% QoQ) due to new launches in the U.S. market and momentum from Revlimid. However, the domestic business is likely to be impacted by weakness in the acute segment due to seasonality.
Ebitda margin is expected to expand 478 bps YoY (-479 bps) due to lower raw material costs and better product mix across geographies. Net profit margins is expected to rise 393 bps YoY and (-501 bps QoQ).
Key Parameters:
Momentum in Revlimid sales in the U.S.,
Improved ranking in certain brands of Indian formulations business.
Dr. Reddy's
Dr. Reddy's Labaortories Ltd.'s revenue is expected to increase at 7.2% YoY (0.5% QoQ) in Q2 FY24E, driven by product launches in North America, although gRevlimid momentum may likely moderate.
The India business is likely to be driven by price increases and gradual improvement in market share of critical brands. Ebitda margin is expected to contract by 90 bps YoY (- 140 bps QoQ) to 29.1% due to higher marketing investments and reduced gRevlimid momentum.
Net profit margin margins are likely to rise by 159 bps YoY (-157 bps QoQ).
Key Parameters:
Key launches in the U.S. and Europe;
sales pick-up from launches in previous quarters
Divi's Labs
Divi's Laboratories Ltd.'s revenue is expected to increase 5.7% YoY (+10.2% QoQ) due to strong growth in generic and nutraceuticals, although the lack of Molnupiravir sales will impact overall growth.
The top-line is expected to be further supported by the strong growth in contrast media. Ebitda margin is expected to contract to 369 bps YoY (+145 bps QoQ) to 29.8% compared to the high base achieved in the previous year's quarter.
The net profit margin is expected to decrease 328 bps YoY (+210 bps QoQ).
Key parameters:
Outlook on sales potential from custom synthesis,
Update on product pipeline.
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